Overview and legal framework for foreign venture capital and corporate venture capital funds to invest in Israeli startup companies. Barry Levenfeld is a Senior Partner in the Technology Practice group at the law firm of Yigal Arnon, representing international companies like eBay, Medtronic, EMC, Oracle, IBM, Symantec, Boston Scientific, CA Technologies

1. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Start-Up Nation: the Legal
Framework
June 29, 2015
Adv. Barry Levenfeld

2. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Selected M&A Transactions
Represented
in its acquisition of
Undisclosed Value
December, 2014
Represented
in its acquisition by
Undisclosed Value
October, 2014
Represented
in its acquisition by
$95,000,000
October, 2014
Represented
in its acquisition by
Undisclosed Value
August, 2014
Represented
in its acquisition by
NIS 500,000,000
May, 2014
Represented
in its acquisition of
$360,000,000
May, 2014
Represented
in its acquisition of
$570,000,000
April, 2014
Represented
in its acquisition of
Undisclosed Value
January, 2014
Represented
in its acquisition by
$130,000,000
January, 2014
Represented
Represented Represented Represented Represented
in its acquisition of
in its acquisition of
in its acquisition of
in its acquisition of
in its acquisition of
$235,000,000
March, 2013
NIS 465,000,000
December, 2012
$650,000,000
*according to press reports
August, 2013
Undisclosed Value
July, 2013
$42,000,000
March, 2013
Represented
in its acquisition by
$370,000,000
January, 2015
Represented
in its acquisition of
Undisclosed Value
March, 2015
Represented
in its acquisition by
Undisclosed Value
April, 2015
Represented
in its acquisition by
$374,000,000
November, 2014
Represented Represented
in its acquisition of
in its acquisition of
assets of
$135,000,000
November, 2012
$10,000,000
May, 2012
Represented
in its investment in
Undisclosed Value
May, 2012
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3. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Lessons of 25 Years of Practicing
Hi-Tech Law in Israel
 “Silicon Valley” practices have been adapted to the Israeli legal and
business environment
◦ First venture investments in the early 1990s
 Corporate, tax and other fields of law revised steadily to level the
playing field (more on this later)
 Local legal and accounting professions have grown increasingly
sophisticated
◦ Larger and with more specialization, more like US colleagues, in terms of
professionalism and expertise
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4. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Then and Now
Then Now
Currency Controls Complex and Byzantine Gone!
Stamp Tax
Inefficient, complex and
sometime costly
Gone!
Acquisition by Reverse Triangular
Merger
No – only share purchase Yes, like in the U.S.
Tax Free Reorganizations Very few
Better, but not as good
a the U.S.
Capital Gains Treatment for Founders
Shares and ESOP
No Yes
Capital Gains Tax on Foreign
Investors
Yes No
Capital Gains Treatment for VC
Carried Interest
No
Yes, subject to certain
rules
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5. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Start-Up Companies
Dramatic reduction in capital gains tax rate on founders’ shares (creates
tremendous incentive; no more complex tax planning)
Employee Stock Options Plans (taxed at capital gains rates, and only upon exercise
– key to incentivizing employees)
Articles of Association (equivalent to Certificate of Incorporation in the US) can
accommodate standard venture capital provisions
•Liquidation Preference
•Anti-dilution Protection
•Minority Shareholder protections
•Drag-Alongs, Co-Sales, ROFRs
Bankruptcy is acceptable and common
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6. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Venture Capital Funds
Industry Jump-Started by “Yozma” Funds in 1990s
Most active VCs are Cayman Island Funds with parallel Israeli funds
Tax ruling regime protects foreign investors
GP’s carried interest taxed at capital gains rates, subject to certain rules
VC deals look and feel like US deals – terms are a mix between East Coast and West Coast
standards
Recent government initiatives: biomed fund and risk reduction for institutional investors
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7. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Raising Money – Recent Developments
Accelerators, Hubs, Incubators
• Provide some mentoring and basic services
• Provide physical premises
• Provide limited funding for a limited period
• You must do your due diligence!
Crowd Funding
• “Pure” crowd funding not available in Israel yet
• “Accredited Investor Clubs” pose challenge to the venture model
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8. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
IP Protection - Key to Hi Tech Success
Patents, Copyrights, Trademarks, Trade Secrets
Data Privacy
Computer Law (not that long ago, Israel still used England’s 1911 Copyright Act)
Encryption Controls
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9. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Special Incentives for Israeli Technology Companies
Office of the Chief Scientist
• R&D funding
• Incubator support
Approved/Benefitted Enterprise (tax advantages)
BIRD Foundation
Government Support
• Biotech funds and incubators
• Encouragement for Institutional Investors
Case Study: Orbimed/J&J/Takeda Incubator
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10. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Some Reflections on Israeli Hi Tech
Nasdaq v. Nablus
The Role of the IDF
The Role of Universities and Hospitals
The Role of the Global Giants - Do Israeli companies sell out too soon?
The legal infrastructure plays a key role in enabling the hi tech revolution
Israeli laws relevant to hi tech, while not perfect, are similar in many respects to the
U.S. and more attuned to hi tech than the laws of most European countries
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11. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il 11
Barry Levenfeld
 Harvard College, AB 1976; Harvard Law School, JD 1979
 Made aliyah in 1983
 Practiced with Adv. Hanan Melcer, now a Supreme Court justice
 Senior Partner in Yigal Arnon & Co.’s Technology Practice Group
 International tech clients include eBay, Medtronic, EMC, Oracle, IBM,
Symantec, Boston Scientific, CA Technologies
 Representation of venture funds, technology start-ups, IPO’s of Israeli
companies, and technology M&A transactions
 Senior Lecturer, Hebrew University Law Faculty, in high tech corporate
finance

12. Barry Levenfeld, barry@arnon.co.ilBarry Levenfeld, barry@arnon.co.il
Thank You!
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